What We Learned From the GDP Number

Hard to see why everyone gets so excited about gross domestic product data. The stock market surged Thursday after the pre-opening announcement that the economy had grown 3.5% in the third quarter. But why?

Is anyone really surprised by the announcement, in the closing days of October, of data on how the economy performed in July, August and September? Do we really need anyone to tell us? Didn't we all live through it? Aren't investors supposed to be interested in the future, rather than the past?

That's how it used to be. Nobody cared, nor should they have. But the world is so uncertain and dangerous now, we have to take seriously every little bit of information that could conceivably bring any sanity to our crazy world.

So let's take a look at the GDP data and try to find something useful -- and something that you haven't already read somewhere else.

What everyone already knows is that the economy grew in the third quarter -- after three quarters of shrinking. And it grew a lot. Three-and-a-half percent is a big number. Not a huge number, especially after three bad ones. But it's good news on the face of it, and not particularly a surprise.

Here's something that surprised a lot of supposedly smart people, and it's very important for what it signals about the future of the economy. In the third quarter, the portion of GDP that constitutes personal-consumption expenditures -- spending on goods and services by consumers -- hit a new all-time record high at 71%.

That's so surprising and important because lots of very influential economic commentators have been saying that, even when the economy recovers, the American consumer won't. There's too much unemployment; too much debt; too much loss of retirement savings in houses and the stock market. How can consumers keep on spending? Well, apparently they can. More than ever.

Well, not exactly. Consumers spent about the same amount this last quarter as they did the same quarter last year. But GDP this quarter was 2.3% lower this quarter than last year. That means consumer spending made up a larger share. In fact, as I said, this quarter it was the largest share in history.

In other words people produced less, but they spent the same amount. What does that tell you? It tells you that even in the tough times we've been through this last year or two, people still want to spend. There's no change in behavior at all.

How does this fit in with all the talk you hear every day in the media about the "new normal" -- the coming generation of sadder but wiser consumers who scrimp and save. Forget the image of the spending-happy consumer. No more BMWs. No more flat-panel TVs. No more lattes. It's a new world of Hamburger Helper for everyone.